Regional Inspector General for Audit Cairo, Egypt_part3 docx

ALLIED
ACCOUNTANTS
in
Note 3 to the fund accountability statements. Because
of
inherent limitations
in
any internal
control structure, errors
or
irregularities may nevertheless occur and not be detected. Also,
projection
of
any evaluation
of
the structure to future periods
is
subject to the risk that
procedures may become inadequate because
of
changes in conditions
or
that the effectiveness
of
the design and operation
of
policies and procedures may deteriorate.
Our
consideration
ofthe
internal control structure would not necessarily disclose all matters

In
the internal control structure that might be material weaknesses under standards established
by
the American Institute
of
Certified Public Accountants. A material weakness
is
a condition
In
which the design
or
operation
of
the specific internal control structure elements does not reduce
to a relatively low level, the risk that errors
or
irregularities
in
amounts that would
be
material
in
relation to the fund accountability statement being audited may occur and not be detected within
a timely period by employees in the normal course
of
performing their assigned functions.
However,
we
noted no matters involving the internal control structure and its operation that we
consider to be material weaknesses.

However, we noted certain matters involving the internal control structure and its operation that
we have reported to the management
of
the Egyptian Small Enterprise Development Foundation
and the United States Agency for International Development
in
a separate letter dated July 27,
1995.
This report
is
intended for the information
of
the management and others within the Egyptian
Small Enterprise Development Foundation and the United States Agency for International
Development. This restriction
is
not intended to limit the distribution
of
this report which b a
matter
of
public record.
July
27, 1995
All ied Accountantsl Arthur Andersen Egypt
17
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ALLIED
ACCOUNTANTS

Ragheb. ISlanbouli &
EI
Kilany
A Member
Finn
of ARTHUR ANDERSEN & Co SC
Public
Accountants
& BuslIless
AdvIsors
Feilo", &
'.1embers
of
the
EgypLJan
SOClelY
01
AccOWliants
&
Audllo~
Mr. Lou
Mundy
Regional
Inspector
General
for
Audit
,
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United
States
Agency
for International
Development
Cairo.
Egypt
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Report
of
Independent
Pyblic Accoyntants

On
Compliance
Wjth
Laws
and
Reiulatjons
We
have
audited
the fund
accountability
statements
relating
to
the loan fund. collateral loan
fund.
and
operating
expenditures for
the
period from
June
I, 1991 to
August
3
1.
1994
of
the
Egyptian

Small
Enterprise
Development
Foundation
relating to funds received and costs incurred
under
Cooperative
Agreement
No.
263-02
I
2-A-00-9064
financed
by
the
United States
Agency
for
International
Development
pursuant
to
the
Small
and
Micro Enterprise
Development
Project,
Grant
Agreement

No.
263-0212,
and
have
issued
our
report thereon dated
July
27. 1995.
Except
as
discussed
in the following
paragraph,
we
conducted
our
audit in
accordance
with
generally
accepted
auditing
standards
and
Government
Auditing
Standards
issued by the
Comptroller

General
of
the
United States.
These
standards
require that
we
plan
and
perform the
audit
to
obtain
reasonable
assurance
about
whether
the fund accountability
statements
are free
of
material misstatement.
We
did not
have
an external
quality
control
review

by an unaffiliated audit
organization
as
required
by Paragraph 33
of
Chapter
3
of
Government
Auditing
Standards
(1994
revision) since
no such
quality
review program is
offered
by
professional organizations in Egypt. We believe
that the
effect
of
this
departure
from the financial
audit
requirements
of
Government

Auditing
Standards
is not material
because
we
participate
in the
Arthur
Andersen & Co.
worldwide
internal
quality
control
program
which
requires
our
office
to be subjected,
every
three
years. to
an
extensive
quality
control review by
partners
and
managers
from

other
Arthur
Andersen
&
Co.
offices.
Compliance
with laws. regulations.
contracts
and
grants applicable to the Small
and
Micro
Enterprise
Development
Project
is
the
responsibility
of
Egyptian Small Enterprise
Development
Foundation's
management.
As
part
of
obtaining
reasonable
assurance

about
whether
the fund
accountability
statements
are
free
of
material
misstatement,
we
performed tests
of
the Egyptian
Small
Enterprise
Development
Foundation's
compliance
with certain
provisions
of
laws.
regulations.
contracts
and grants.
However.
our
objective
was not to provide an

optnion
on
overall
compliance
with such provisions.
Accordtngly.
we do not
express
such
an optnion.
The
result
of
our
tests
of
compliance
indicate
that
WIth
respect to items tested. the Egyptian
Small
Enterprise
Development
Foundation
complied.
in
all material respects, with the provisions
referred
to

in the fourth paragraph
of
this report.
The
results
of
our
procedures
disclosed
immaterial
instances
of
noncompliance
with
those
laws and regulations, which are described
in
the
Compliance
with
Laws
and
Regulations
-
Audit
Findings
section
of
this report
Vve

also
n

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ADDRESS: 37 EL AHRAR ST., MOBICA TOWER. MOHANDESSEN -
poll!ox
9;
DOKKI. GIZA. EGYPT - TEL
(20:
3362000 -
FAX:
(202) 36008

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ALLffin
ACCOUNTANTS
noted certain matters that were communicated to ESED management in a separate letter dated
July 27, 1995.
This report is intended for the infonnation
of
the management and others within the EgyptIan
Small Enterprise Development Foundation and the United States Agency for International
Development. This restriction
is
not intended to limit the distribution
of
this report which IS a
matter
of
public record.
~c
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July 27, 1995
Allied Accountants/Arthur Andersen Egypt
19
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Egyptian Small Enterprise Development Foundation
Audit Expenditures Incurred Under
The Small and Micro Enterprise Development Project

Cooperative Agreement Nos. 263-0212-A-OO-9064
For the Period from June
J.
1991
to August 3 I. 1994
Compliance with Laws and Regulations
Finding
Findinji No. J - Errors
in
Reports Submitted to USAID
Our
review
of
the financial reports submitted to USAIDlEgypt identified that
in
some months,
while the column that identifies the expenditures incurred during the month being reported was
correct and was based on information taken from the project records, the accumulated column
was incorrect. As a result, the accumulated expenditures reported to
USAIDlEgypt were
underestimated
in
the amount
of
US$4,035 (LE 13.517). Standard Provision for Non-U .S.
Grantees, Section 2.0 Accounting, Auditing, and Records requires the grantee to maintain books.
records. documents, and other evidence to sufficiently substantiate charges to the grant. These
reports are prepared by one
of
the project accountants. and approved by the Financial Manager.

but they are not reconciled against the project records.
ESED's
Executive Director and Financial
Manager agreed with the finding and stated that condition will be corrected.
We recommend that
ESED ensure that the financial reports submitted to USAID/Egypt are
reviewed to ensure clerical accuracy and that they are reconciled to the project records.
Findinli No . 2 Commjnjilinji
of
Operatinji Funds with Other ESED Sources
We noted that
ESED has deposited
in
the project operatIng expenses account funds provided by
ESED members for enrollment and membership fees. Although, these other funds were minor,
ESED did not keep subsidiary records nor prepare a reconciliation to differentiate USAIDlEgypt
funds available from other sources. As a result. ineligible expenses could be disbursed with
project funds and not be detected on a timely basis. The Standard Provisions for
non-US
Grantees, Section 01.0 Payment - Periodic Advance states that all AID funds shall not
be
commingled with other grantee owned
or
controlled funds. USAID funds should kept
in
a
separate bank account.
We recommend that
ESED establish separate bank accounts for USAID/Egypt project funds.
Findin~

No. 3
Ineli~ible
and Unsupported Expenses Reimbursed with Project Funds
As discussed
in
Finding Nos. I and 2
of
the Fund Accountability Statements - FindIng Section,
the
Project was reimbursed for ineligible expenses such as advertisement unrelated to the project,
fines. tips, tea and coffee. As cited
in
OMB Circular A-122 these type
of
expenses are
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unallowable. The Financial Manager was not aware that these expenses were unallowable, and
ESED agreed to ensure that
in
the future they are funded by other than USAIDfEgypt sources.
In
addition, ESED management stated that they are in the process
of
hiring an internal auditor
We recommend that
ESED Financial Manager review the expenses billed to USAID!Egypt I,'
ensure they are
in
compliance with agreement terms and adequately supported.

In
the case that
the internal auditor
is
hired, he/she should verify that ESED complies with these requirements.
21
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Egyptian Small Enterprise Development Foundation
Audit
of
Expenditures Incurred under
the SmaJl
and
Micro
Enterprise Development Project
Cooperative
Agrccmcnt
No.
263-0212-A-OO-9064
For
the Period
from
June
1.
1991
to August 31, 1994
Management
Comments
Appendix A

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EGYPTIAN
SMAll
ENT£RPRISE
DEUElOPMENT
FOUNDIITION
December
13,
1995
Allied Accountants! Arthur
AndCISCn.
Egypt
Subject:
Documented response to d.r:lft
Audit
findings-report
dated
July
27, 1995 covering the period
JUDe
1, 1991
to
August

31,
1994
-
Egypti:uJ
SJrulIl
Enterprise
DeveJopment
Found:ltioD
(ESED)
Findjng
No.1
- Errol)
in
Repom Submjtted
to
USAlD
ESED's
Finance Manager
now
ensures
that
all
USAlD Financial Reports are reviewed
and
reconciled
to
projects ledgers before submission. Attached, please find the August
1995
Certified Fiscal Repon
to

which
we
have attached a copy
of
the Financial Statements and a
summary
of
operational
costs
charged
to
USAID - inception through August 31,
1995.
(Attachment No.1)
Finding
No
2 - Commingling of Operatin: Funds
with
Other ESEP Sources
A separate bank account will be opened
in
Misr Bank for funds provided by ESED members.
Amounts
can
be
~ily
identified and deposited separately.
F:'lding
No
3 • Ir;;;"'jble and UnSllPpored

E>p;~(es
relmbllrsed with project Funds
1.
Ineligible
E~.=enses
in
(he
amoullJ
of
USS6.165 (L.E. 20.653)
Cafe:e:ia E:tpenses
in
the
amount
or'
L.E. 16,327.
ES:::::l' s
~11I1age:r.e:1t
ag,ees
to
rer"~r:d
thiS
amount
to
USAID.
Ot::::,;~y
In
r:e'.vsp:!per
In
tne

a:-:1c<:!1t
of
:".E
l.SCO
ES::::)'s
~!lI1age:nent
agrees
to
re:'und
thiS
amount
to
USAID.
Pc::::: ::otIces
In
newspaper
1:1
the
amounts of
L.E
432 and L.E. 1,080
(Total
or"
L.:::.
:.512)
Dc::.::: ~:m
were remeved
from
the riles and were iound
to

be advertisements
re:::.:~:.
to
Foundations' me:noers. This expense should be eligible for
billing
to
V~
.
.: ID
as
It
IS
an
imegr.ti part of ESED' s activities. Copies
of
original
dcc:.::: ;!:-:ts
are
att.1cned
(A,t.1cnr.:em
No.2)
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Tips totalling L.E. 1,014
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EGYPTIRN
SMRLL ENTERPRISE
DEUELOPMENT
FOUNDRTlI
The listed amounts represent costs related to legal expenses incurred in relation
to
delinquent borrowers and therefore eligible for billing to USAID. After
reviewing the documentations,
we
found that they are eligible but are actually
unsupported by receipts due to the nature
of
the legal process itself in order to
obtain the required forms and locate the delinquent borrowers.
2.
Unsupported Expenses in the amount
of
US$
6.243 (L.E. 20.914)
Telephone bill
in
the amount
of

L.E. 2,000
The actual cost
of
this transaction was
L.E.
2,743.90 and was erroneously
charged
to
USAID as L.E. 4,743.90
in
the January 1994 Certified Fiscal Report
(Attachment No.3). This error was corrected
in
the August 1995 Certified Fiscal
Report (Attachment No.
I).
Petty Cash advances totalling
L.
E.
9,000
ESED Petty Cash fund is
an
imprest fund. All advances are settled by the end
of
each Calendar Year. Therefore, all amounts were expended on various
expense line items.
Petty Cash settlements at the end
of
each Calendar Year are
attached as well as the related

USAID Fiscal reports which show that while the
advances were charged, the actual disbursements were not and therefore, there
were
no
double-billings made
to
USAID (Attachments No.4). Effective January
1,
1995, ESED started charging the actual expense disbursement and not the
advance amount as done previously. Attached is the January 1995 Fiscal Report
with no charge for advances made
to
Petty Cash since decision was made to
charge the actual expenses
as
they are incurred. (Attachment No.5).
Petty Cash advances totalling L.E. 5,000 (last two listed) dated January
1991
and January 1995)
These two amounts happen
to
fall outside the period under audit and therefore
should be removed from the findings. We have also attached the
Petty Cash
settlement and related USAID Fiscal Report for the month
of
December
1991
to
settle the January

1991
finding amounting to
L.E.
3,000. (Attachment No.6).
As
for the January 1995, finding
in
the amount
of
L.E. 2,000, please refer to
Attachment No.5 which shows
no
amount being charged
to
USAID as a Petty
Cash
advance during this period.
Social Insurance-employer share for Ashraf Mekawy, from
1191
to
4/94
in the
amount
of
L.E. 4,914
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EGYPTIRN
SMRLL

ENTERPRISE DEUElOPMENT fOUNDRTION
Amounts were actually paid
by
the employee to the public accounting firm
(Nabil Abdel
Salam EI Meazawy Office) but were classified incorrectly under
social insurance while charge should have been made
to the salaries general
ledger account. We attach Application Forms No.2 for the years 1991, 1992 and
1993 with Ashraf Mekawy's name as insured as well as a receipt showing the
remittance to the
Social Insurance Organization. We also attach the Application
forms 1 and 6 covering the periods referred to and forms 1 dated March
1,
1994, the effective date
of
including the employee in the Foundation's file at the
Social Insurance Organization. (Attachment No.7).
In light
of
the above, please find below a summary
of
amounts to be refunded and amounts we
request that you remove from your final report:
1.
Cafeteria Expenses
2. Obituary in newspaper
3. Public nutices in newspaper
4. Tips
5.

Telephone bill
6.
Petty Cash Advances
7.
Petty Cash Advances
8.
Social Insurance
A!!rl'ed
16,327
1,800
L.E.18,127
L.E. 41,567
=======
1,512
1,014
2,000
9,000
5,000
4,914
L.E.
23.440
We hope that the above response and attachments satisfy your requirements and look forward
to our continued cooperation.
Sincerely,
M~
Mosta
Attachements as stated.
3
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Egyptian Small Enterprise Development Foundation
Audit

of
Expenditures Incurred under
the
Small
and
Micro Enterprise Development Project
Cooperative Agreement No. 263-0212-A-OO-9064
Auditors' Response to Management Comments
Appendix B
Our
comments below address the Egyptian Small Enterprise Development Foundation's (ESE D)
responses regarding the questioned costs
as
identified in the findings on the Fund Accountability
Statements
and
the findings
on
Compliance with Laws
and
Regulations relating to
our
audit
of
the
Small
and
Micro Enterprise Project.
We
deleted questioned costs that were adequately supported by

ESED. For those findings for which insufficient supporting documents were provided
or
for which we
did not agree with the adequacy
of
the ESED response, the findings remain the same
or
have been
modified
as
discussed below.
The
ESED
management response is presented in Appendix
A.
Please note that
ESED's
response uses
finding numbers in
our
report on Compliance with Laws
and
Regulations.
We
have included the
ESED
numbers in parenthesis following
our
finding number.
Fund Accountability

Statement
Finding
No.1
Ineligible expenses (See Appendix A - ESED Response - Finding
No.3)
ESED
provided sufficient evidential
matter
to support
US
$451 (LE 1.512)
of
the ineligible expenses.
Ineligible expenses
of
US
$5,714 (LE 19,141)
remain
as
questioned costs.
ESED
has
agreed
to refund
USAID/Egypt
US
$5.411 (LE 18,127)
of
expenses in this finding. Insufficient evidential matter was
provided for the remaining amount

of
US
$303 (LE 1,014).
The
finding
has
been modified accordingly.
Finding
No.2
Unsupported expenses (See Appendix A - ESED Response - Finding
No.3)
ESED
did not provide sufficient evidential mater to support the questIOned costs. This finding remains
unchanged.
Compliance with Laws
and
Regulations .
Finding
No.1:
Errors in Reports Submitted to USAlDlEgypt (See Appendix A -
ESED
Response -
Finding
No.1)
ESED
did not provide sufficient evidential matter to support their representation that adjustments have
been made to the reports submitted to
USAlDlEgypt,
and
that the adjusted reports now reconcile to the

project records. This finding
remams unchanged.
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Finding
No.2:
Commingling
ofOperanng
Funds
\.\1th
other ESED Sources (See Appendlx A - ESED
Response - Finding
No.2)
No documents were provided to evidence the opening
of
a separate bank account. As a result. this
finding remains unchanged.
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l·tt'··)
UNITED
STATES AGENCY for INTERNATIONAL DEVELOPMENT
t;::;:ttttl
'111··"
::;,t.IRO
EGYPT
Appendix
C
February
29,

1996
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Lou
Mundy,
RIG/A/C
I 0 3
MAR
1996
I : = =
Shirley
Hunter,
OD/FM/FA
Financial
Audit
of
the
Egyptian
Small
Enterprise
Development
Foundation
(Cooperative
Agreement
No.
263-0212-A-OO-9064)
-
Draft
Report
dated

January
15,
1996.
Mission
is
working
with
the
implementing
agency
to
resolve
and
close
Recommendation
No.
1
under
the
subject
audit,
and
has
no
comments
to
offer
at
this
time.

Please
issue
the
final
report.
106
Kasr
EI
Aini Street
Garden
City
Cairo, Egypt
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